British humorist Douglas Adams used to say that “nothing travels faster than the speed of light with the possible exception of bad news, which obeys its own special laws.” Europe’s alarm bells were set off this summer when the UK’s Office for National Statistics published a report on the country’s economic growth on August 12th. The figures it revealed were devastating. After Brexit took place on February 1, 2020, and with the country mired down by the Covid pandemic, one can observe a remarkable, pronounced contraction of the economy between April and June, totaling up to 20.4% of the GDP. This percentage is, without a doubt, terrible news for Boris Johnson’s government, because it’s the worst number recorded since the beginnings of the statistical registry, which dates back to the founding of the ONS in 1959 during Harold Macmillan’s government. The percentage differs greatly from that of the countries in the Eurozone, who experienced an average contraction of 12.1%. However, it wasn’t too far from that of Spain, which suffered a fall of up to 18.5% of its GDP.
The British have officially entered an economic recession and they know very well what crisis means, because they’ve been through quite a few of them in their history, especially during the 18th, 19th, and most notably, 20th century, coinciding with the global consolidation of liberal capitalism. The War of the Spanish Succession, for example, called for huge economic efforts from the English, whose situation was complicated by a series of bad harvests. As a consequence, England’s GDP suffered a decline of 15% in 1706. This situation was exacerbated by the harsh winter experienced in Europe between 1708 and 1709, triggering another 14% GDP hit. These were very complicated years, but they managed to overcome them and fight adversity under the premise of unity between Scotland and England, with the enormous success of the 1707 Act of Union.
A century later, the consequences of the depression following the Napoleonic Wars dragged on for nine years, from 1812 to 1821. This caused times of extreme need, precisely at a time when the country had lost its North American colonies less than 30 years prior. With Europe subdued after the agreements reached at the Congress of Vienna, to which both Lord Castlereagh and the Duke of Wellington contributed greatly, the country could grow and flourish on the bedrock of the First Industrial Revolution. It was a remarkable time of peace and a balance of power between the old European nations.
However, the Panic of 1873 caused a serious, costly, and long-lasting economic crisis for the country that lasted until 1896. It stemmed from the economic problems that jumped from continent to continent and ended up battering the United Kingdom particularly hard due to the growing interdependence of the fledgling world economy. The inflation in America, which was largely caused by rampant speculative investments in areas such as the railway sector, coupled with the demonetization of silver in Germany and the United States, the consequences of the deadly Franco-Prussian War (1870-1871), and the devastating losses of the Great Chicago Fire in 1871 and the Great Boston Fire of 1872, caused tremendous pressure on bank reserves. These were the triggering factors behind the crash of the Vienna Stock Exchange on May 9, 1873. The city was then the capital of the Austro-Hungarian Empire and shortly afterwards, the bankruptcy of the Philadelphia-based bank Jay Cooke & Company on September 18, 1873 caused a far-reaching economic shock.
The working classes were the most affected by the consequences of these events in the United Kingdom, as they saw their incomes drop. The subsequent deflation affected agriculture severely, and many farmers chose to sell their smallholdings and set off for the big cities in search of better opportunities, which they found in the flourishing industry at the dawn of the Second Industrial Revolution. There was little bread and few rights in the suburbs of London, Manchester, and Liverpool. It was in this atmosphere that the discontent of the proletariat grew, and partisan movements which defended the working class, such as the Labour Party, founded on February 27, 1900 by the Scotsman Keir Hardie, began to emerge.
The economic depressions of the 20th century in England were, if it were even conceivable, much harsher in terms of human suffering. This is because the First World War pushed the country into a series of post-war recessions that caused severe episodes of population decline and falls in GDP of between 6 and 8%. The loss of millions of young men, massacred in the European trenches, and the subsequent labor shortage led to an economic collapse that would take the entire roaring twenties to recover from. It would have dragged on longer had it not been for the help of and income generated by England’s multiple colonies, who destined all of their production to serve the interests of the metropolis.
In the following decade, the 1930s, the country would also have to tackle enormous economic costs following the Crash of 1929. Further havoc was wreaked on the United Kingdom’s balance of payments when trade with the United States of America tapered off after demand for imported products dropped sharply in the former colony. In addition, the high interest rates set to defend the gold standard obliged the country to abandon it in September of 1931, with declines that ranged between 3% and 5% annual deflation. The nation needed up to 16 financial quarters for its GDP to bounce back to pre-recession values. After that, there was a series of cyclical recessions, which were not as severe as the ones mentioned previously, but still had serious consequences for the prime ministers that headed up the different conservative and Labour governments.
In 1956, for example, Anthony Eden had to come to terms with the British automobile industry’s lack of competitiveness, high bank fees, the effects of the Suez Crisis, and the costs derived from the oil embargo imposed by the Arab countries. All this led to his fall from power on January 11, 1957. The British economy had to face a new crisis when the country first joined the European Communities, due to the 1973 oil crisis. It experienced uncontrolled stagflation, the decline of traditional British industries, inefficiency and low productivity, and a breakdown of the social dialog seeking to end labor disputes concerning salaries.
Edward Heath’s government had to deal with the crisis and managed to unite the public opinion, which was miraculously convinced of joining the European construction project at a hugely complicated time. However, the project almost derailed, because under his successor, Harold Wilson, a referendum on whether the country should stay in the European Communities was held. Although the outcome was positive, the prime minister’s fatigue and lack of long-term vision proved to be an insurmountable obstacle to him staying in power. He resigned on March 16, 1976.
The lack of political stability, of visionary leaders, and of effective measures to resolve the crises that plagued those years took a huge toll on the British Labour party, who didn’t have a prime minister for almost 20 years after James Callaghan’s government. With the arrival of Margaret Thatcher to 10 Downing Street, the country had to face the strong deflationary measures that she implemented, which included cutbacks to public spending, the establishment of monetarist policies, an absolute reduction in inflation, and the transition from a manufacturing economy to a services-based one. As a consequence of all this, company profits slumped 35%, the unemployment rate soared from 5.3% of the active population in August 1979 to 11.9% in 1984, and the GDP took thirteen quarters to reach the stability achieved in 1979, with spikes in inflation of 18.0% in 1980, and 11.9% and 8.6% in the following two years, respectively.
The Iron Lady’s first term, openly criticized by the European Communities, proved to be detrimental in economic terms. However, she managed to regain the confidence of the population in time for the 1983 elections, thanks to the nation’s victory in the Falklands War. The following years featured back-to-back conservative majorities headed by Lady Thatcher, until she was ousted in 1990 due to her open lack of pro-European sentiments and her unpopular national policies, which included cuts to school lunches and taxes on the middle and working classes.
During those years, as anti-Europeanism grew, fueled by the major state institutions, the country’s economy reaped the benefits of its membership in the European Communities – it saw immediate economic impetus after its incorporation into the common market. The UK’s trade with the EEC member states took off immediately after it joined, quantitatively surpassing the trade it had enjoyed with the rest of the European Free Trade Association (EFTA) member countries. This fueled its external trade, improved its balance of payments, and increased its competitiveness thanks to the notable reduction in tariffs.
The European Union, under the governments of John Major, Tony Blair, Gordon Brown, and David Cameron, gave the United Kingdom everything it could have wanted from it. For almost half a century, being more open to world markets proved beneficial for the country, fostering its economic dynamism, increasing direct foreign investments within its borders, improving the competitiveness of its companies, and giving rise to constant innovation in all of its productive sectors.
However, in 2016 the country decided to once again hold a referendum on its continued membership in the integrative European project. Citizens were called to vote, under the weight of decades of Euroskepticism and with a limited cultural awareness of the pros and cons of European Union membership. They were subjected to a climate of toxic opinions by spurious powers that pointed to Europe as the source of all the UK’s problems. Under these circumstances, on June 23, 2016, the citizens, mostly in Wales and England, proclaimed it was their will to no longer stay in the European Union. The political elite set off on the path to the country’s exit, invoking article 50 of the EU Treaty, calling for unity among citizens and assuming the generational role that history had bestowed upon them. Exiting the EU became the priority for the governments of Theresa May and her successor, Boris Johnson, who considered themselves leaders of a chosen nation, destined to waltz out of any crisis and successfully circumvent all the great crossroads of history. Even in moments when it seemed they would be left at the mercy of foreign powers, like in the times of Phillip II, when the powerful Spanish monarchy sent their Invincible Armada to invade the islands and failed, or in the face of Napoleonic forces, when they bypassed the Continental Blockade imposed by the French emperor, or under the terrible Nazi bombardments, the British never succumbed.
The fact is that these events forged the country’s indomitable and sovereign character, making up a substantial part of its national consciousness. Today, the British feel they are the heirs of this ethos, and they are ready to defend their isolation in the face of any integrative project that may shape a new European political entity. This self-imposed isolation and the lack of long-term vision typical of their statesmen are pushing the country towards the perfect storm. We cannot forget that the United Kingdom has worked diligently for freedoms and democracy in Europe. Millions of its citizens died on battlefields fighting for freedom and democracy, but sadly, today the grandchildren and great-grandchildren of that brave generation will suffer twice as badly as a result of this folly.
According to the American financial consulting company Bloomberg, the cost of Brexit has reached 130 billion pounds and could surpass 200 billion pounds by December of this year. The British economy has missed out on a 3% consecutive growth rate over these past three years, and it has approved expenditures of 4.5 billion pounds to make announcements and prepare British companies for the country’s exit from the customs union and common market, which will occur on January 1, 2021. The UK has been left out of the 750-billion-euro reconstruction fund, and has also been excluded from a very generous multi-year financial framework created by the European Union, worth more than a trillion euros, which will lay the foundations for the economic recovery. The United Kingdom finds itself once again alone, in a recession, without support from the European Union, with no check, and with a huge bill to pay for its exit from the union, valued by the UK’s Office for Budget Responsibility at 37.1 billion pounds. Some already predict that this scenario will be the end of the liberal order that has ruled in the country for decades.
It was Benjamin Franklin who said, “Beware of little expenses; a small leak will sink a great ship.” Brexit and Covid are two separate phenomena that have somehow managed to coincide in the particular space-time we find ourselves in. They represent not only the most difficult crisis in the history of the nation, but also the biggest hole that may very well completely sink the country thanks to the thoughtlessness and short-sightedness of its leaders. As always, it will be the humblest and hardest-working classes, currently frozen in a state of shock, that are left holding the bag.
The United Kingdom, in the future, could turn this situation around. Under a generation of pro-European leaders, it could ask to return to the heart of the European project, invoking article 49 of the EU Treaty. Nonetheless, they must be conscious of the costs this will entail, as they’ll need to fully comply with the acquis communautaire, without reservations or exceptions, losing the comfortable position the nation had attained over the years. Crises are more bearable as members of a Union, and we Europeans know this because in the coming years we will begin to see EU money reach member states to spur their recovery from the Covid crisis. Meanwhile, the United Kingdom is and will be alone in the face of adversity, without colonies, without an empire, and without any outside help, left to gaze out at the tempestuous waters of the Atlantic.
Julio Guinea is professor of International Relations at the Grado en Relaciones Internacionales
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